No End in Sight to Supply of Cheap TV's

By SAUL HANSELL and ERIC A. TAUB; Christopher Buckley contributed reporting from Beijing for this article.

Published: January 4, 2005

When one of the biggest Chinese makers of television sets and its distributor in the United States run into financial trouble, should American consumers worry?

No, say industry experts, who note that low-priced conventional TV's are now such generic commodities that the market is not much affected when any single manufacturer stumbles.

Conventional cathode-ray tube televisions, which are increasingly produced by low-cost makers in China and elsewhere, are now so inexpensive that few companies can build a stable business around selling them, yet many companies are still supplying the market with cheap sets, analysts said.

This dynamic has been highlighted by the story of Apex Digital, the American consumer electronics brand, and the Sichuan Changhong Electric Appliance Company, the large Chinese television maker that produced most of the televisions for Apex.

Last month, Changhong said Apex owed it $467.5 million, and as a result, it would post a big loss for 2004. David Ji, Apex's chairman, has been arrested by Chinese authorities and has been charged with fraud. While the substance of the dispute remains unclear, it shows how difficult the electronics business can be.

Apex, which has sold inexpensive sets through Wal-Mart, Circuit City, and other retail outlets, largely pulled out of the low-end television business in the middle of last year, industry executives say. While Apex's troubles may be substantial, the effect on consumers is likely to be modest, and only at the very lowest end of the TV market.

''Apex TV's are sold at grocery stores,'' said Riddhi Patel, a senior analyst for iSuppli, a research firm in El Segundo, Calif. ''Their 20-inch TV is $79, a ridiculously low price. The next price up is $89-$100, so retailers will miss out on those consumers who wanted a $79 TV.''

Marietta Schoenherz, the director of public relations at Apex, declined to say if the company was still in the tube television business or to comment on the status of Mr. Ji. Reuters, however, quoted Ms. Schoenherz as saying that Mr. Ji was returning to the United States this week to attend a trade show.

She said the company was in negotiations with Changhong. ''We have a business dispute that is being addressed,'' she said, declining to elaborate. Changhong says its last shipments to Apex were in April 2004.

Apex, which is based in Ontario, Calif., came to prominence several years ago, by using Chinese manufacturing to make DVD players that were far cheaper than Japanese and Korean-made machines. But as others started making DVD players in China, the prices for the devices fell far below $100, forcing Apex to look around for other markets. Two years ago, Apex entered the American television market with sets made by Changhong, one of the largest makers of TV's for China's domestic market.

But the television market has been fiercely competitive, and Apex's strategy of making TV's in China has been a disadvantage. Most tube televisions for the North American market are now made in Mexico because of the cost of shipping.

Moreover, last April, the Commerce Department imposed a tariff of 24.48 percent on sets made by Changhong and imported into the United States, accusing the Chinese company of selling goods below cost, a practice known as dumping. Other Chinese TV makers also have to pay tariffs of 4 percent to 78 percent.

Nancy Dang, an analyst with iSuppli in Shanghai, noted that Changhong exported about two million sets in 2004, the same as in 2003. She added that the company intended to overcome the high tariffs imposed on it by the Commerce Department by shipping televisions to the United States via Turkey, where they will be assembled. Other Chinese manufacturers like Konka and Skyworth, she said, may set up plants in Mexico.

The imposition of the tariffs appears to have caused Apex to pull out of the conventional TV market.

''Apex has caused the collapse in television prices,'' said Don Benji, president of Benji-26, a Los Angeles electronics distributor.

Mr. Benji added that prices had not risen, even as Apex pulled back, largely because consumers are increasingly buying flat-screen televisions rather than tube models.

''The supply is good, but the demand is not there for tube sets,'' he said.

TCL, the other large Chinese maker, has not had problems in the United States. It formed a joint venture with the television business of Thomson, which sells TV's under the RCA brand. But most of its sets are made in Mexico and Thailand and not subject to the tariff.

''Less than 10 percent of our TV's come from China,'' said Dave Arland, a spokesman for TCL-Thomson Electronics. ''Anything larger than 27 inches is counterintuitive to make in China due to shipping costs.''

Apex, too, has tried to move to higher-price products, like L.C.D. televisions, portable video players, and DVD recorders. But it has yet to make a significant mark in these markets.

Retailers are hardly mourning Apex's troubles. While many carried its products, many also saw the company as the symbol of how products with extremely low prices can lead to a sharp decline in prices and profit margins.

Sears, for example, has sold Apex televisions to help it appear to compete with discounters like Wal-Mart, but it mainly hopes to persuade customers to buy more expensive models when they arrive at the store, said Lauren Jiles-Johnson, a Sears spokeswoman.

''Any retailer without a low price point in their newspaper ad creates the perception that your merchandise is overpriced,'' she said.

Best Buy, meanwhile, severed its relationship with Apex about a year ago and now buys its low-end televisions directly and sells them under a house brand, Impulse, a spokeswoman said. She declined to say where those sets were made.

The low end of the television market will be shaken again as the government phases in a requirement that all new sets have tuners that can receive digital broadcasts. All sets over 13 inches will need digital tuners by 2007. This digital tuner, mainly meant for high-definition televisions, will add several hundred dollars in cost, at least at first, to sets so small that they cannot display high- definition signals effectively. Still, manufacturers like TCL are expecting a new market to emerge in small digital sets.